2023-03-07 09:35:25 ET
Fed Chair Jerome Powell is set to make remarks shortly, which should provide Wall Street with some future insight to where markets will end up as they continue to battle against elevated inflation. As a result, U.S. Treasuries will be primed for potential price swings as they attach themselves to the prediction of future rate hikes and cuts.
Does it all matter? Harley Bassman a managing partner at Simplify Asset Management doesn’t believe so.
“By intent or accident, the market has bet the ranch that the U.S. economy is going to ‘hard land’ soon, and thus induce the FED to cut rates as early as Labor Day (September); that is simply NOT going to happen. While ‘goods’ inflation is calming (used cars, really?), ‘service’ inflation has not pulled back.”
Bassman outlined that he does not see the Fed cutting rates until 2024 and not in late 2023 like many predict.
Bassman added: “The Yield Curve is way too inverted given even optimistic inflation projections relative to the FED’s stated politics and policies.”
The inversion of the yield curve has widened even further once again as it touched on Tuesday its widest point since 1981. The spread between the U.S 10 Year Treasury yield ( US10Y ) and the U.S. 2 Year Treasury yield ( US2Y ) reached a gap of 93 basis points.
As the yield curve inverts, Treasury ETFs and large-scale bond funds come into focus: ( NYSEARCA: AGG ), ( NASDAQ: BND ), ( NASDAQ: TLT ), ( NASDAQ: IEI ), ( IEF ), ( SHY ), ( GOVT ), ( VGSH ), ( VGIT ), ( SCHO ), ( SCHR ), ( SPTL ), ( TLH ), and ( VGLT ).
If history is correct, elongated inverted curves are a precursor to a recession as it was seen before the 2008-2009 Great Recession and also before the 2001-2003 market meltdown.
In broader financial news, major averages are muted ahead of remarks from Fed chief Jerome Powell.
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Powell set to speak, yield curve inverts 90 basis points, what's next for Treasury yields?